Unemployment Taxes Rise

20 states see federal tax rate increase this year.

The unemployment insurance benefits states have been providing to workers during the recession are likely to haunt businesses in the form of higher unemployment insurance taxes for years to come. Such taxes have already begun to rise and are projected to rise again this year, although some states have taken steps to mitigate the increases.

Employers pay both federal and state unemployment insurance taxes. The Federal Unemployment Tax (FUTA) is nominally 6%, but it’s offset by a 5.4% credit, making the effective tax rate 0.6%. That credit is reduced, though, if states have borrowed from the Federal Unemployment Account to pay benefits, as many have. The Labor Department shows that the Federal Unemployment Account was owed a total of $37.5 billion as of Jan. 12 by 27 states and the U.S. Virgin Islands, with California’s $10.1 billion representing about a quarter of that debt. Other states with big IOUs include New York with $3.5 billion, Pennsylvania with $3.3 billion and North Carolina with $276 billion.

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